The Starmer/Reeves Project: A View From the Left by Larry O’Hara published in Labour Briefing August/September 2024

Keir Starmer has a poor grasp of economics (needing a 2021 crash course from Lord Falconer of all people). Therefore, he heavily relies on Chancellor Rachel Reeves.  She talks up the Bank of England part of her CV: not impressive in itself, but even less so is her working for Halifax Bank of Scotland when it crashed in 2008. No surprise her go-to memory is of mother doing house-hold accounts at the kitchen table instead.

Reeves has introduced a new buzz-word ‘Securonomics’ into economic discourse but apart from giving the state a role in creating markets and a regional emphasis, more style than substance. As recently as 2018 Reeves wanted to end inheritance tax loopholes, halve the annual capital gains tax allowance and have it paid at income tax rates, restrict higher rate pension contribution tax reliefs and compel UK pension funds to invest in British jobs raising in her words “over £20 billion per year of tax revenues and a further £20 billion of investment funds which could be used to build up the proposed Sovereign Wealth Fund”–but these ideas have vanished.

What follows is a selective snap-shot of some key economic policies

There are useful policies:

Workers’ Rights

An end to fire and rehire and enforced imposition of zero hours contracts, as too a promise to improve wages and training in the Care sector, as well as acquiring employment rights on Day one of a new job. That said, no real new money is promised, and these policies are likely to be the first diluted, which is why the unions declined to endorse the manifesto.

Green Policy

Some good ideas: doubling onshore wind, tripling solar power and quadrupling offshore wind by 2030. There are obstacles, and not just technical difficulties (e.g. copper shortage) to achieving Net Zero by 2030. The £28 billion p.a. Green New Deal flagship policy has already been junked, replaced by a paltry £8.3 billion for ‘Great British Energy’ over 5 years.  Furthermore, GBE is not the nationalised body the sector needs, but a means of subsidising private capital investment.  As with the banking crisis, we pay but private companies profit.  And putting polluting water companies in ‘special measures’ is no substitute for nationalising them.

National Wealth Fund/Investment

On the one hand, there is industrial intervention with the National Wealth Fund (£1.5 billion p.a.) and a broader remit for the British Business Bank. On the other, the Institute For Public Policy Review believes “a Starmer-led government would end its first term having cut investment more than the entire Conservative 2010-24 administration”.  As for private investment: despite multiple proposed talking shops/reviews/consultations there is no mechanism to compel City funds to invest. While the word ‘resilience’ is thrown about like confetti, there are no precise policies capable of bringing it about.

Other Policies are unpalatable in principle

Continuing Austerity

Under the ‘Fiscal Credibility Rule’ austerity will continue. Unaltered Tory spending plans mean (according to the Resolution Foundation) £19 billion cuts in Justice, The Home Office & Local Government by 2028-29. Making no change to income tax thresholds until then (if at all) means a real cut in living standards, increasing at the rate of inflation each year. Not raising thresholds is itself a tax increase, rendering hollow the promise not to increase tax.

Not Confronting the City

This government is deferential towards the City of London: while an October 2023 tweet criticised the last government scrapping a cap on banker’s bonuses, three months later, Reeves announced Labour would not reimpose the cap. Her justification referred to business needing ‘stability’—in other words bankers wouldn’t like it. A policy document was issued in early 2024 ‘Financing Growth: Labour’s Plan For Financial Services’. Of the Report’s ‘Advisory Panel’ every single member works in the City. With not one representative from the unions, industry, academia or (god forbid) the general public.  Unsurprisingly, not only does the report not see the City–now a bloated laundromat for worldwide dodgy money–is a big problem, Reeves thinks it part of the solution, something repeated in the manifesto.

To be fair, no U-turn yet on a proposal to tax private equity bonuses, an increase from the current 28% rate on deals to 45%, which the Financial Times thinks might raise £400 million p.a.  Rest assured though, that policy reversal is almost as sure as indefinite delay to applying VAT/business rates on private schools.

The Numbers Don’t Add Up

The Reeves/Starmer mantra is everything in the manifesto was fully costed: which the unwary might have thought meant the numbers add up, guaranteed by ‘iron-clad’ fiscal rules that (in the manifesto’s words) mean “day to day costs are met by revenues and debt must be falling as a share of the economy by the fifth year of the forecast” and, equally important, that “policies not listed here will be funded from existing budgets or do not have a cost”.  In other words, anything exceeding the stated figures will be funded by yet more cuts. Of course, we are asked to believe instead that growth will markedly improve, meaning increased tax revenues, but given a likely paucity of investment, not likely.

The manifesto uses as illustration 2028-29 figures, with increased revenue of 7.35 billion and new policies costing £4.83 billion, meaning a nominal £2.5 billion surplus per year. Leaving aside these figures exclude massive interest payments on the national debt, there is still a big problem. While the government has already reneged on the 2019 pledge to 3.5 million women affected by the raising of the state pension age (WASPI women) to whom the Ombudsman recommended £3.5-10 billion compensation, other fiscal demands are harder to ignore. Here the Tories were for once astute, kicking cans down the road. First is a projected £10 billion to compensate victims of infected blood. Then there is a likely £2.4 billion to compensate 4,000 affected by the Post Office Horizon IT scandal. Both policies wipe out completely any room for fiscal manoeuvre within current plans. Additionally, Starmer’s jingoistic adherence to the so-called nuclear deterrent is another financial millstone. In December 2023 it was revealed costs had risen by £38 billion in just one year, a trend likely to continue. And not budgeted for.  Add to this near-bankrupt councils, crumbling NHS, universities and schools in chronic crisis, and a disintegrating criminal justice system….

Limited Room For Manoeuvre

Over and above ‘fiscal rules’ and a pledge not to increase VAT, income tax and corporation tax, there are two further ways the government has limited room for manoeuvre. They are doing nothing about the Bank of England’s malign influence, and even worse, continuing to defer to the ‘Office For Budget Responsibility’ who will seek to prevent any innovative policies or increase in borrowing.

There Are Still Options

The Reeves/Starmer project is not necessarily doomed: headway can be gained by interest rate reductions, and reclassifying borrowing and spending elements. Eliminating £37 billion per year interest the Bank of England (unbelievably) pays to private banks due to the Quantitative Easing policy is another idea, but would alienate City interests Reeves has assiduously courted.

How Should The Left React?

Such popularity as the government has accrued, by simply not being Tories, will soon evaporate. There will be increasing pressure, not least from workers subject to years of austerity, a rejuvenated Tory party, and (based on historical precedent) a resurgent Far Right. While it seemed clever PR to put Keir Starmer front and centre of the manifesto, a cover picture promising totally unspecified change and totally reminiscent of Michael Douglas in ‘Falling Down’ mode, there are no reservoirs of keen activists or a viable vision to inspire anybody when the going gets rough.

In this situation the admittedly embattled Left needs continued policy development (the Right has few ideas), to maintain organisational cohesion, and support workers and communities struggling against ongoing austerity. We should also explain to Labour members and MPs what is happening and why, while advancing an alternative (just as in the 1970s with the Alternative Economic Strategy), and not be drawn into defending indefensible policies now a reality. Linking with Left MPs (of whatever denomination) and extra-parliamentary groups will be crucial here. Mandelson once boasted of putting the Left in a sealed tomb: this strategy failed once and may do so again, if we hold our nerve. There is no other way.